Brazil regulator classifies Subida da Serra project as transportation pipeline

Brazil's oil and gas watchdog ANP has ended negotiations with the São Paulo state public services regulatory agency (Arsesp) and gas distributor Comgás over the classification of the Subida da Serra gas pipeline. 

Arsesp and Comgás argued the São Paulo project should be classified as a distribution pipeline, but ANP deems it a transportation line.  

Thiago Luiz Silva, a lawyer at Vieira Rezende, told BNamericas that there are enough reasons for Arsesp and Comgás to go to court against ANP's decision.

The 473mn-real (US$83.5mn) project will connect Compass Gás e Energia's (Cosan) liquefied natural gas regasification terminal (TRSP) in the port of Santos to the grid of its gas distribution unit Comgás. 

The 31.5km pipeline will have the capacity to handle 16Mm3/d (million cubic meters per day) of natural gas. 

In 2019, Arsesp approved Comgás’ investment plan, which included the Subida da Serra project. On that occasion, the agency classified the pipeline as part of the distribution grid. 

In 2021, amid concerns about verticalization in the sector, the ANP classified the pipeline as a transport pipeline. But the regulatory agency itself later considered changing its mind. 

After additional studies, the ANP concluded that classifying the pipeline as a distribution line would raise the unit cost of Brazil’s gas transportation rate by 13%. This is because the pipeline transportation grid regulation includes a limit on revenue, which is apportioned among the system's users. If one user leaves the system, those who remain have to bear the cost. 

Comgás currently has a contract for imported gas via Subida da Serra for 2.25MMm3/d of gas, which could rise to 4MMm3/d.

Rogério Manso, CEO of gas transporters association ATGÁS, says that ANP's decision puts the issue on track for a technical analysis. 

“The solution cannot be one that compromises the industry's operating principles. It has to be consistent with a model that guarantees that there will be an integrated national transportation grid, not based on isolated solutions,” Manso told BNamericas. 

He stressed that a model will have to be sought that preserves the investments made by Compass in the project. 

“What matters to us is that the regulations are complied with, guaranteeing legal certainty and long-term investment capacity.”

The controversy over the classifications of the pipeline stems from the division of competencies in Brazil's constitution, which separates jurisdictions for regulating natural gas as follows:

a) All activities upstream of the city gate, including natural gas transmission, LNG terminals, import, export and processing, are governed by federal legislation;

b) All activities downstream of the point of custody transfer (city gate) are considered natural gas distribution activities and are governed by state legislation.

Silva, the Vieira Rezende lawyer, pointed out that the original layout of the Subida da Serra pipeline included a connection to a natural gas processing facility. This, combined with the pipeline's technical characteristics, initially led the ANP to classify it as a transportation line. 

However, the layout of the project changed, as the ANP itself later acknowledged, according to Silva. 

“In the new configuration, Subida da Serra remains within the geographical limits of the distribution grid and downstream from the city gate of the Comgás concession, without access to the distribution grids of other states or gas transmission pipelines,” said Silva.

“So, although the Subida da Serra pipeline did indeed have the characteristics of a transportation pipeline in its original layout, this is no longer the case with the change in layout.”

As the ANP has not yet issued a resolution establishing the diameter, pressure and length characteristics of a transportation pipeline, Silva believes that the classification of distribution pipeline should be preserved. 

Comgás declined to comment on the matter when contacted by BNamericas. 

Arsesp did not respond to BNamericas.